I was just made aware of the updated PayPal Acceptable Use Policy on 3/8/07 that OK'S the selling of mature audience items w/ some restrictions.
Oh yeah, eBay still WON'T let you list/purchase mature audience items via PayPal, however, see below...
Copied directly from the PayPal website:
Mature Audiences Policy
PayPal will process payments for the purchase and sale of certain sexually oriented physical goods but currently does not allow transactions for sexually oriented digital goods. PayPal also currently does not allow transactions for any sexually oriented physical or digital goods by non-U.S. residents.
Physical Goods
PayPal PERMITS TRANSACTIONS for certain sexually oriented physical goods BY U.S. RESIDENTS. Physical goods include videos, DVDs, magazines or other tangible products physically delivered to the customer. In determining what physical goods are permitted or prohibited, PayPal may consider some or all of the following factors:
* Any regulations or restrictions on the purchase or sale of the good in the applicable jurisdiction.
* The classification of the good by a recognized ratings board.
* Whether the work depicts or describes, in a patently offensive way, sexual conduct.
* Representations or descriptions of intercourse, masturbation, excretory functions, or lewd exhibition of the genitals.
* Dominant theme of the material or website.
* Literary, artistic, political, or scientific value.
* Safety and protection of its customers, both buyers and sellers.
* Medical or educational usage of the product or service.
Digital Goods
PayPal prohibits transactions for all sexually oriented digital goods. Digital goods include downloaded pictures or videos, subscriptions to websites, or other content delivered through a digital medium.
Other Prohibited Goods and Services
Notwithstanding the requirements and factors described above, PayPal prohibits transactions for the following goods or services:
* Any sexually oriented goods or services involving minors, or made to appear to involve minors.
* Any services for which the purpose is to facilitate meetings for sexually oriented activities.
PayPal will not include sexual preferences or viewpoints as a factor in determining what goods or services are prohibited under the Mature Audiences Policy.

Edited by - xyz1406 on Aug 14 2007